Marcel van Poecke joined Carlyle in 2013 to run the US private equity firm’s new energy fund and immediately signed its first deal, buying his family office’s stake in a Swiss oil refiner.
In the decade since, the veteran Dutch investor has turned London-based Carlyle International Energy Partners into an unusual outpost of the buyout world by snapping up unloved oil and gas assets across Europe, Africa, Asia and Latin America.
While Carlyle’s main private equity rivals, including Blackstone and Apollo, have backed away from fossil fuel projects citing climate concerns, van Poecke and CIEP have persisted, arguing that it is better to invest in reducing emissions from oil and gas businesses than to divest.
“Not owning them doesn’t make them disappear because there’s obviously demand on the other side for that supply,” said Megan Starr, Carlyle’s global head of corporate affairs. “We’d rather be the owners of that supply and have a much more aggressive hand in the average emissions intensity . . . of energy produced by those companies.”
CIEP last month announced its 15th investment, a $945mn deal for a portfolio of oil and gas projects in Italy, Egypt and Croatia that will form the basis of a new Mediterranean-focused producer chaired by former BP chief executive Tony Hayward.
While other Carlyle funds invest in renewable power and some of CIEP’s portfolio companies are developing clean energy technologies such as hydrogen and biofuels, van Poecke and Starr argue that as long as fossil fuels remain part of the energy mix, they also require responsible investment.
And as some of Carlyle’s main US-focused buyout funds have struggled with poor performance amid a fumbled succession from the group’s founders to new management, the energy strategy has proved a success.
CIEP’s $2.3bn second energy fund, raised in 2019, has achieved a multiple on invested capital of 1.7 times — representing the current fair value of the assets plus realised proceeds — and generated a 13 per cent net annual return, outperforming many other private equity funds raised around the same time. The $2.5bn first fund, raised in 2013, has achieved a 1.9 multiple on invested capital and a 9 per cent net annual return.
Carlyle provided much-needed “patient capital”, subject matter expertise and unrivalled connections to customers, said Dev Sanyal, chief executive of CIEP-backed Varo. “They have a Rolodex like no other.”
Van Poecke has become one of Europe’s most successful energy sector dealmakers since co-founding Swiss oil refiner Petroplus in 1993. After selling the company in 2005 to Carlyle and New York-based Riverstone he ran it for another two years but left after it listed in Zurich, using his profits to set up a family office, AtlasInvest.
Carlyle and Riverstone made healthy returns on the deal but Petroplus fell into insolvency in 2012, enabling van Poecke to buy back its idled Cressier refinery in partnership with commodity trader Vitol.
The following year he joined Carlyle and made the Cressier refinery the energy fund’s first investment, selling AtlasInvest’s stake in the joint venture, Varo, to his new employer.
In 2013, most energy-focused private equity funds were pumping money into the US shale boom, as horizontal drilling technology opened up new oil and gas reserves in the country.
“We saw an open space outside of the United States,” van Poecke said. “People were not really looking.”
After Varo, CIEP acquired a Romanian oil and gas business in the Black Sea, bought onshore oilfields in Gabon from Shell and in Colombia from Occidental, and took a stake in a set of oil and gas projects in Europe, north Africa and south-east Asia from Engie. In 2019, it acquired 37 per cent of Spanish integrated oil and gas company Cepsa from owner Mubadala.
“We clearly saw an opportunity . . . to buy businesses, invest in the whole energy value chain — so upstream, midstream, downstream, the whole complex — and improve those businesses in terms of positioning for the future,” van Poecke said. He backed CIEP’s second fund with $100mn of his own money.
By the early 2020s, however, amid intensifying investor scrutiny of the private equity industry’s carbon emissions, many groups began to divest carbon assets or ban oil and gas drilling from their portfolios.
For funds that had lost heavily on US shale after ambitious executives overspent and oil prices collapsed, the decision to withdraw from oil and gas was somewhat easier, people familiar with the matter said.
By contrast, Carlyle said in February 2022 that it would hold on to its energy investments but reduce each portfolio company’s emissions in line with the goals of the Paris climate agreement.
Then chief executive, Kewsong Lee, hired a former Canada Pension Plan executive, Avik Dey, to co-head CIEP and moved van Poecke to a new role as vice-chair of the platform. But only a month after Dey started, Lee resigned in a dispute over his pay. Dey, who did not respond to a request for comment, left four months later.
Despite the turmoil inside the company, Carlyle’s energy investments were delivering healthy returns, helped in part by soaring oil and gas prices resulting from the upheaval in energy markets caused by Russia’s invasion of Ukraine.
In 2022, a year when many private equity portfolios were pummelled by higher interest rates, Carlyle’s $27bn infrastructure and natural resources portfolio gained 48 per cent, largely driven by its energy investments. It gained a further 8 per cent last year, when it generated almost a third of Carlyle’s total performance fees, which are earned when selling assets for a profit, according to filings.
“They couldn’t shut down these energy investment businesses because they were too high of a percentage of the profit of the firm,” said one former Carlyle executive. In addition to CIEP, Carlyle owns a large minority stake in NGP, a private equity firm focused on US oil and gas.
Lee’s departure and the delayed retirement of chief operating officer Christopher Finn were good for CIEP, the former executive added, empowering van Poecke and other Europe-based dealmakers. Finn was a supporter of top European staff, according to people familiar with the matter.
Van Poecke is now chair of energy at Carlyle, while CIEP is run by managing directors Bob Maguire and Guido Funes.
Starr, a former head of ESG at Goldman Sachs who joined Carlyle in 2019, has helped guide much of the group’s thinking on what constitutes responsible investing in traditional energy assets such as oilfields and refineries.
Within two years of ownership, each company must have a strategy to reduce emissions and a board-level ESG committee to oversee implementation, she said. For companies that produce fossil fuels there are further “guardrails”, such as joining the UN-backed programme for the reporting and mitigation of methane emissions.
Carlyle is also betting that by reducing absolute emissions its companies will be more valuable when the fund needs to exit. Last year it sold the portfolio of former Engie assets, know as Neptune Energy, to Italy’s Eni for $4.9bn having reduced the carbon intensity of operations since 2017.
“It’s a part of our investment thesis,” Starr said. “What’s the maximum feasible decarbonisation potential that we can implement and execute over our hold period.”
CIEP’s most ambitious investment is arguably in Cepsa, where chief executive Maarten Wetselaar is aiming to expand the oil and gas company’s low-carbon businesses, such as hydrogen and biofuels, from nothing to more than 50 per cent of group earnings within six years.
Wetselaar, who was hired from Shell in 2022, argued that such a rapid transformation would not be possible if Cepsa were publicly held.
“Having worked for a long time in a stock exchange traded company, I have seen how difficult it is to change your investor base from the big fossil fuel investor base that owns the majors . . . to an ownership that is enthusiastic about green investments,” Wetselaar said.
Both Shell and listed rival BP have pared back their energy transition plans in the past 18 months, following lacklustre support from shareholders.
“There’s a no man’s land between those two investor categories that you can’t cover by incrementally decarbonising your company,” Wetselaar said.